Top 3 Recent Automotive Logistics Trends, Part 1
In a series of blog articles, the Product/Solutions Marketing team explores new business challenges and innovation solutions to change the game and manage disruptions. The following are the insights gained from my discussion with Salim Shaikh, who leads Blue Yonder’s Automotive Industry Strategy, and James Peck, VP of Supply Chain Execution Presales, during a recent Blue Yonder Live and from webinars and automotive events that we prepared for.
Complexity, Complexity, Complexity
Terence: Automotive OEMs and suppliers are digitally transforming their supply chain and logistics operations to gain a competitive advantage in the new normal. Automotive logistics has been very complex, involving multiple modes on the inbound side to the original equipment manufacturers (OEMs) and multi-tier parts distribution center (PDC) product distribution centers networks when it comes to transporting aftermarket parts. No matter which area of automotive logistics we are talking about, it is usually highly specialized and often outsourced to 3PLs.
Salim and James, this year, our OEM and supplier customers have seen a tremendous amount of changes, especially around how they are managing logistics. What are the new trends and key changes that you are seeing today?
Salim:When we are talking to our customers, whether it is the automotive OEMs like Mercedes-Benz, Ford, Toyota, Renault, and Polaris; or Tier 1 customers like Bridgestone, Michelin, Adient, Cummins-Meritor, and Yazaki; or are even high tech and semiconductor customers like NXP, Infineon, and Analog, what we are hearing is that the industry itself is going through a significant upheaval.
The cars of today are nothing short of data centers on wheels or software-defined vehicles. They have GPUs, cameras, sensors, and semiconductor chips. And with the trend towards even more autonomous, connected and electric vehicles, that is only going to increase the product complexity further.
On one hand, you have product complexity that is increasing and then OEMs have to support multiple platforms, both the internal combustion engine (ICE) platforms and the electric vehicle (EV) platforms. And on the other, what we are also seeing at the same time is a tremendous increase in disruptions: supply disruptions, volatility, uncertainty, NAFTA, chip shortage, tariffs, and Brexit.
These unexpected demand and supply swings and disruptions have significantly impacted the automotive industry because it has a very complex ecosystem. We have the auto dealers, logistic service providers, 3PLs, and OEMs, which include Tier 1, Tier 2, and Tier 3 suppliers. Increasingly supply chain has become a board level agenda for many customers in terms of is the impact on EBITDA for the quarter.
Terence: James, would you like to add to these topics?
James:What we are seeing on the supply side is complexity with increased volatility and uncertainty. As we have observed in the last two years, the magnitude and the frequency of supply chain disruptions are on the rise. The automotive industry is seeing a double whammy with demand and supply issues.
And with inflation on the rise, it is now top of mind for many executives. When we listened to the earnings calls from the OEMs, as well as from Tier 1 suppliers, like Magna, Lear, American Axle, and others, we observed that Tier 1 suppliers are again getting squeezed between higher commodity costs because of inflation but they have not been able to raise prices. The OEMs and Tier 1 suppliers are trying to counter inflation, as well as enable supply chain resiliency.
Terence: With increased volatility and uncertainty, are automotive companies changing the way they view logistics?
Salim: The chief supply chain officers are increasingly asking about visibility to the suppliers, if there is a disruption. They want to know what suppliers are going to get impacted. The VP of logistics, transportation or supply chain is concerned about congestion across networks, labor shortages, transportation delays, port bottlenecks, cost pressures, and how much they are spending on premium freight.
Enabling supply chain resiliency on the logistics side and reducing transportation freight costs are really key. Being resilient by getting more control of the transportation and logistics operations is top of mind for them. And this includes having better strategic relationships, improved collaboration with their logistics providers, and possibly even bringing the 3PL or 4PL operations in-house to reduce those transportation and warehousing costs. This is top of mind on both the inbound and outbound sides, as well as on the OEM and aftermarket business.
James: I agree. A lot of these automotive companies we are working with are looking to be more responsive and more resilient across their supply chain. We are seeing a real move from a very singularly focused network where they might have a single 3PL. The companies might be dealing with a single freight forwarder moving product into the country through a single port option. And now they are really shifting towards more of a world of diversification and more options to manage things going from A to B in the post-pandemic world.
Managing more ports and considering more diversified carrier strategies and mode alternatives are the ways to deal with just a single point of failure. The second motion is that a lot of the automotive companies out there are moving away from a state where logistics was never a core competency in-house. Most of their expertise had been outsourced and that includes even some or all of their data.
Now we are seeing a shift where companies want to build up their expertise, deal with exceptions themselves, and not be tied to a single carrier or 3PL calling the shots when there are exceptions. We are seeing more customers really embrace this not just making parts, but how do they ship them and managing the end-to-end process across their supply chain.
Visit blueyonder.com for more information about the upcoming Automotive Leadership Summit hosted by Blue Yonder and Microsoft. Learn more from the Unified Logistics and Omni-Channel Execution e-book.
More Insights to Come
In an upcoming Part 2 article, we will get more insights from Salim and James about innovative solutions to manage disruptions and cost-to-serve.